Underpants, Ground Beef, and Car Dealerships: A History of Leucadia National

Ever since Warren Buffett took over failing textile manufacturer Berkshire Hathaway and turned it into a financial leviathan, there have been other companies trying to create conglomerates following his example. These so-called Mini Berkshires, like the original, are willing to go into an array of industries to try to make money.

That's where Leucadia National (NYSE: LUK) comes in, as one of the largest and most respected companies following this model. Here, we're going to examine some important stops along the way of their long, winding history.

From underpants to financeLike Berkshire Hathaway, Leucadia National has its origins in something much less exciting than a worldwide conglomerate. In this case, we have to go all the way back to New York City, in the 1850s, and a Connecticut farm boy, fresh out of school and looking to make his way in the big city.

Leucadia National actually has its origins as James Talcott, which itself started with young James Talcott and a wheelbarrow full of under-garments. His older brother John was running a knitting company in New Britain, CT, and James Talcott got his start peddling samples to the various stores in New York. His business grew, slowly at first, and eventually James Talcott became an important commission merchant for several different manufactories.

Times changed, and the company changed with them, transitioning from underpants dealers to a financial company with a series of subsidiaries in everything from consumer finance to factoring. They fell on hard times, and had to restructure in 1978.

Becoming LeucadiaIt was in this environment that Ian Cummings and Joseph Steinberg, a pair of Harvard Business School grads, acquired the company, then called Talcott National Corporation. In 1980, they renamed it to Leucadia National, a name they read on a road-sign.

That was the beginning of a failing finance company becoming a conglomerate with over $9 billion in market cap. Yet from its modest start the company still had a lot of transactions to do: buying, improving, and reselling various businesses over the years.

Easy Come, Easy GoIn April of 1991, Leucadia made a $150 million deal with Florida Power & Light to buy insurer Colonial Penn. Florida Power & Light was openly desperate to pawn off the subsidiary, and Leucadia got a fabulous deal.

How fabulous? Just six years later, in early May of 1997, Leucadia turned around and sold Colonial Penn to Conseco for $460 million, a threefold increase.

In 2006, Leucadia made another great purchase, acquiring Premier Entertainment for just $90 million. Premier was at the time in dire straits, having sunk all of their money into building the Hard Rock Hotel & Casino in Biloxi, MS and watching it wrecked by Hurricane Katrina. With some patience and a little financial expertise, Leucadia was able to revitalize the operation, and sold Premier Entertainment off to Twin Rivers Management in December of 2013 for $250 million.

Even when there wasn't a direct buyer, Leucadia has found ways to make money. In 1991, Leucadia bought the tiny Pine Ridge winery in California. They added other wineries to their portfolio over the years, a steady revenue generator for years. By 2013, the winery segment was getting pretty big, and Leucadia spun it off as Crimson Wine Group to shareholders, and that company itself sports a $200+ million market cap.

Jefferies The one current holding we have to focus on above all others is financial services company Jefferies LLC, which Leucadia acquired in November 2012 for $3.8 billion. They remain a wholly owned subsidiary, and at $5.3 billion account for more than half of Leucadia's current book value.

As a conglomerate constantly looking for companies on the cheap, Jefferies makes a ton of sense for Leucadia. What better way to sniff out deals than to own a major global investment bank with research coverage across myriad industries?

Despite Jefferies being just another property on paper, they are likely to remain in the Leucadia fold more securely than almost anything else simply because they fit so well with the conglomerate's overall strategy.

Where's the beef?After Jefferies, all the other current holdings are much, much smaller. The next biggest is a 79% share in National Beef Packing, acquired in 2011 for $867.9 million. The company is the fourth largest US beef packer, and includes a trucking subsidiary and a leather tannery in Missouri.

The US beef market hasn't exactly been strong since 2011, and the current book value of Leucadia's holding is $793.7 million. Leucadia has maintained they are optimistic about National Beef Packing's prospects going forward, particularly if overseas bans on US beef start to ease.

Liquified natural gas, the long-term playNot everything comes and goes as quick as the examples above. In January of 2007, Leucadia bought out bankrupt Calpine's Skipanon Natural Gas Company, turning it into Oregon LNG.

Actually, what they bought in Skipanon was a cheap lease to some land around the Port of Astoria in Oregon, and for only $4.25 million. The long view is to turn Oregon LNG into a massive liquified natural gas exporter. That's going to take years more to come to fruition, but Leucadia has already gotten some federal loan guarantees on building facilities and even a massive Department of Energy permit to export 456.25 billion cubic feet of natural gas annually for a period of 30 years. At current prices, that's an annual export of $2.04 billion worth of natural gas.

Getting from here to there is a long, winding road, but Leucadia seems to be doing an admirable job cutting through the red tape, and whether they see Oregon LNG to fruition or sell it off to some energy company better able to turn all of these permits and guarantees into a massive exporter, they're clearly on the road toward making something big out of that $4.25 million initial investment.

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Comments from our Foolish Readers

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A decent historical recap but this article is missing what is most needed -- an analysis of the recent transition since Ian Cummings and Joseph Steinberg have left the scene and transitioned day to day control to Jefferies' Rich Handler and Brian Friedman, and have become CEO and president -- please add a part II. Thanks

The early history is interesting. A conglomerate is difficult to understand. LUK is a tightly held company. Very little info. leeks out. So I would like to know what is Rich Handler doing to build the net worth of the company? He, himself, advised shareholders to judge LUK based on its increase in capitalization. So, give us the info!